In the international market for lumber, suppose Canadian lumber sells for $100 per tonne while Chinese lumber sells for 500 Chinese yuan per tonne. a) What is Purchasing Power Parity? If the current exchange rate is 4 yuan per Canadian dollar, does Purchasing Power Parity hold? b) If the current exchange rate is 4 yuan per dollar, what is the value of the real exchange rate between Canada and China? To earn a profit by exploiting the arbitrage opportunity, in which country should you buy lumber and in which country should you sell it? c) Suppose that money-supply growth is higher in China than it is in Canada. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

In the international market for lumber, suppose Canadian lumber sells for $100 per tonne while Chinese lumber sells for 500 Chinese yuan per tonne. a) What is Purchasing Power Parity? If the current exchange rate is 4 yuan per Canadian dollar, does Purchasing Power Parity hold? b) If the current exchange rate is 4 yuan per dollar, what is the value of the real exchange rate between Canada and China? To earn a profit by exploiting the arbitrage opportunity, in which country should you buy lumber and in which country should you sell it? c) Suppose that money-supply growth is higher in China than it is in Canada. What does purchasing-power parity imply will happen to the real and to the nominal exchange rate?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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